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Japan's dilemma over the China-led infrastructure bank

Tokyo has declined to become a founding member of the proposed Asian Infrastructure Investment Bank, but experts say the decision may damage Japan's ability to influence financial policies in the region in the future.

Germany and Great Britain are in, along with France, Italy, Australia, South Korea, Brazil, Russia and a host of other nations. But, along with the United States, the conspicuous absentee from the proposed Asian Infrastructure Investment Bank (AIIB) is Japan. The institution, which was proposed by Chinese President Xi Jinping, is aimed at providing finance for the construction of infrastructure, such as roads, ports and railways, in emerging countries in Asia.

"There is no need to participate hastily," Shinzo Abe, the Japanese prime minister, told a recent meeting of his Liberal Democratic Party, explaining his decision for what is being described as "caution" by pointing to concerns over governance standards and the screening process for providing loans. Japan has also demanded that loans issued by the new bank be screened to ensure they meet strict environmental and social criteria.

However, a Japanese government report released on April 8 indicated the advantages of Tokyo being involved in the rule-setting process for the new institution. It is also reported that Japan is mulling a financial contribution to the AIIB worth up to $1.5 billion. But the report comes after the end of the deadline for countries to sign up to become the institution's founding members.

Abe's government has demanded that loans issued by the AIIB be screened to ensure they meet strict environmental and social criteria

Decision delayed

The decision by Tokyo not to register before the March 31 deadline to be a founding member of the institution may prove to be a strategic error, say analysts, who argue that the inescapable conclusion from this move is that Japan was merely siding with the US, its closest political and security ally.

"There is a feeling in Tokyo and Washington that this new bank will simply be an instrument of Chinese policy and, initially, neither expected that many other countries would join," Robert Dujarric, director of the Institute of Contemporary Asian Studies at the Japan campus of Temple University, told DW. "But it is clear that they miscalculated badly on that score," he added.

"My sense is that it would have been better for both Japan and the US to join because that would have meant they would have had people on the inside from the very start, they would have a better understanding of the organization, its aims and the way in which it operates and they would have had a better chance to influence the direction of the bank," he said.

"But for Japan, the most important thing is that it is not being seen to break ranks with the US due to security concerns," Dujarric stressed.

Even Tokyo's effort to keep its options open by insisting it will only make a final decision in June sounds weak, believes Dujarric, who said that should Japan express a desire to sign up to the institution later in the year, "it will arrive late, it will have lost face and it will come in with its tail between its legs."

Go Ito, a professor of international relations at Tokyo's Meiji University, shares a similar view. Japan may arrive "too late to be in a position to influence policy," he told DW.

However, Ito believes, the caution that is being demonstrated by Tokyo is warranted because of deeply-held ideological, economic, historic and geo-political differences that divide the two Asian giants.

Moreover, Japan is already a major force in the World Bank and the Asian Development Bank, and Tokyo does not want to dilute the institutions' significance in Asia, the professor underlined.

There are also fears in Japan that Beijing could use the bank as a way of "scoring points." Tokyo's proposals could be ignored by the Chinese-led institution, its legitimate concerns dismissed and its existing global influence increasingly overshadowed, Ito noted.

Nevertheless, he pointed out, there are risks associated by not being a founding member as Japan would not be able to influence the decision-making process within the new bank.

Left out of the club

Japanese media broadly agree that Japan may find itself at a disadvantage of being left out of the AIIB club.

"It would have been wiser for Tokyo to get involved in creating the framework for the bank to express opinions to make sure that Japan's proposals could be reflected in the bank's policies," Japanese newspaper The Asahi Shimbun said in an editorial.

The AIIB is intended to provide loans for the construction of infrastructure in Asia

"Japan should not only gather information on the details of the accord on the establishment of the AIIB, but also consider more fundamental issues, such as the role Japan should aim to play in a rapidly changing Asia and how to face up to the reality of China's growing influence," it added.

Professor Dujarric believes that, in retrospect, both Tokyo and Washington already regret not joining the AIIB. "It almost looks as if Japan and the US tried to gang up on China and tried to influence other major states not to sign up, but that backfired when other major economies joined," he said. "Japan is clearly taking its lead from the US on this and I just feel that this shows the dysfunctional thinking in Washington and, by extension, in Tokyo at the moment."